A1. Receipts in general

INCOME OR CAPITAL

Income is the fruit, capital is the tree

"[114] Secondly, Rowlatt J said (ibid at 454) that " "Profits or gains" in Case 6 refer to the interest or fruit as opposed to the principal or root of the tree". The homely metaphor of fruit of the tree has often proved helpful in the search for a guiding principle to distinguish capital from income receipts, and unlike Lord Macnaghten's celebrated dictum in the London County Council case, cited in this context by Viscount Dunedin in Leeming, it has the advantage of not being circular. That is not to say that there is no value in the reminder "that income tax is a tax on income". Apart from anything else, it serves to distinguish the proper scope of Case VI, and now section 687, from isolated transactions of a capital nature which do not amount to an adventure in the nature of a trade. It also reflects the fact that the distinction between capital and income receipts is sometimes easier to recognise than to define, and that in reaching a conclusion there is a place for the intuitive common sense of judges or tribunals well versed in tax law. Although the question is in my view ultimately one of law, I do attach some significance to the fact that in the present case both the expert tribunals have had little difficulty in concluding that the awards were of an income nature, even if some of their reasons for doing so are left to be inferred or could perhaps have been more clearly articulated." (HMRC v. Bluecrest Capital Management LP [2023] EWCA Civ 1481, Henderson, Lewison, Falk LJJ)

Look at economic substance

"[115] Thirdly, it is in my view necessary to stand back and examine the commercial reality of the PIP scheme as a whole. So viewed, the economic substance of the matter is that the final PIP awards constituted a form of deferred and contingent reward to the participating partners for their work in the relevant accounting period of the partnership. This assessment of the underlying reality of the arrangements is reinforced by, but not dependent upon, the further findings of fact by the FTT summarised at [96] above. Although, as I have sought to explain, this view of the facts cannot support HMRC's primary case, because (put shortly) it cannot be reconciled with the actual machinery which the parties adopted to implement the PIP scheme, it is in my judgment entirely legitimate to rely on an overall assessment of this nature when answering the question whether the awards were of an income nature." (HMRC v. Bluecrest Capital Management LP [2023] EWCA Civ 1481, Henderson, Lewison, Falk LJJ)

Examples

- Overall effect is deferred and contingent reward for work for partnership: income

"[116] If the partnership was the tree, the deferred PIP award was part of the fruit which the partner derived from his membership of the partnership and his exertions on its behalf during the relevant accounting period. To tax the award under section 687 is appropriate because it reflects the underlying economic reality of the arrangements, and the way in which they were perceived by the parties." (HMRC v. Bluecrest Capital Management LP [2023] EWCA Civ 1481, Henderson, Lewison, Falk LJJ)

IDENTITY OF RECIPIENT

Gifts

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Legislation:

Cases:

HMRC manuals:

Commentary: